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Kay Properties & Investments, known for its top-tier educational events and publications, introduces a new webinar theme focused on tackling the debt replacement challenge for 1031 exchange investors.

TORRANCE, Calif., Sept. 26, 2024 /PRNewswire/ -- Dwight Kay, Founder and CEO of Kay Properties & Investments, one of the nation's most active 1031 investment firms specializing in Delaware Statutory Trusts, announced the release of the latest installment in the firm's weekly webinar series, titled "How to Replace Debt in a 1031 Exchange." This new webinar presentation explores how Delaware Statutory Trusts can potentially offer a streamlined and convenient solution for investors facing the debt-replacement challenge in a 1031 exchange.

According to Kay, understanding the concept of debt replacement in a 1031 can be one of the most confusing topics for even experienced real estate investors. In many cases, investors may not be aware that Delaware Statutory Trusts can provide an efficient 1031 Exchange Strategy that can potentially simplify the exchange process as outlined in Internal Revenue Code Section 1031 while also potentially eliminating the burden of personal guarantees and extensive financial disclosures typically required with acquiring a loan on a property.

"I am very excited to announce the latest Kay Properties webinar theme now being presented during our weekly webinar series held every Wednesday at 11 a.m. PST and 2 p.m. EST. We are also presenting this new presentation to thousands of investment property owners nationwide. This new presentation is designed to instruct 1031 investors how the Delaware Statutory Trust can be used as a strategic debt-replacement tool for investment property owners. We believe investors will be excited to view this presentation as we created it to be both easily understood and thoroughly detailed for a full picture of debt-replacement strategies including providing specific examples of various leverage scenarios with respective 1031 exchange case studies," said Kay.

Kay explained the newest presentation begins by outlining the basic 1031 requirements required for a full tax deferral including the 1031 Value Replacement Rule which states that the value of the replacement property in a 1031 must be equal to or greater than the value of the relinquished property, and that any cash or debt not reinvested is known as a "boot", and is subject to capital gains taxes.

"While these basic rules may seem very straightforward on paper, it is remarkable how complicated this concept can get when investors face real life, complicated debt replacement scenarios. That's why we believe this presentation will be both very popular and valuable because it carefully breaks down how Delaware Statutory Trusts can potentially make the debt-replacement challenge remarkably straightforward and efficient," said Kay.

Kay points out that the latest debt-replacement presentation also highlights some often-missed advantages of using Delaware Statutory Trusts for 1031 investors such as:
Pre-Arranged Debt
With Delaware Statutory Trusts, the debt component is already structured and in place to satisfy value replacement requirements of the 1031 investor. Because DSTs allow investors to purchase a fractional interest in the DST and because DSTs have a variety of financing ratios in place, investors don't need to personally secure new financing, undergo personal credit checks, or provide extensive financial documentation to a lender.

Non-Recourse Debt
A non-recourse loan is a type of debt that is secured by collateral, but limits the lender's recourse to that collateral if the borrower defaults. In other words, the lender can't pursue other assets of the borrower to collect the debt. For example, if a borrower defaults on a non-recourse apartment loan, the lender can only foreclose on the apartment and can't take other legal action against the owners to collect the debt.

Finally, the latest Kay Properties & Investments webinar covers three types of Delaware Statutory Trust (DST) properties that are available on the www.kpi1031.com online marketplace, featuring case studies that demonstrate how 1031 investors can utilize DSTs to address various debt leverage scenarios.

"Since DST properties can support a range of debt replacement needs, this presentation also presents specific examples of three different scenarios," said Kay. "These include DST properties with a 30% - 55% loan-to-value (LTV), highly leveraged properties with 70% - 90% LTV, known as Zero Coupon DSTs, and DSTs that are completely debt-free – these are all cash DSTs that have no risk of a lender foreclosure, cash flow sweep or balloon mortgage maturity."

For investors interested in learning more about how Delaware Statutory Trust properties can help solve the debt-replacement challenge for 1031 s, please visit www.kpi1031.com.

The Forbes Council recognizes Kay Properties & Investments as a leader in the Delaware Statutory Trust 1031 Exchange industry, and the significant contributions Chay Lapin has made toward the commercial real estate industry

TORRANCE, Calif., Sept. 19, 2024 /PRNewswire/ -- Chay Lapin, President of Kay Properties & Investments has been accepted into the Forbes Finance Council, announced Dwight Kay, founder and Chief Executive Officer of Kay Properties & Investments.

According to Kay, Lapin was thoroughly vetted and selected by a Forbes review committee based on his achievements in the DST investments space, the number of years of experience in the commercial real estate industry, and the contributions he has made on behalf of Delaware Statutory Trust investors across the country.

"The Forbes Business Council is a premier think tank of real estate executives, wealth and asset managers, and investment professionals. Since joining Kay Properties, Chay has helped guide our firm's strategic direction as one of (if not the) largest real estate investment firms specializing in end user equity placement in the Delaware Statutory Trust 1031 exchange arena. To date, Chay has helped lead our team of 1031 exchange and DST experts assist nearly 2,500 investors investors into over 9,000 1031 exchange and real estate investment offerings. In addition, Chay is regularly featured in industry publications such as The New York Real Estate Journal, The Commercial Observer, and Yahoo Finance. This is well-deserved recognition," said Kay.

"We are honored to welcome Chay Lapin into the community," said Scott Gerber, founder of Forbes Councils, the collective that includes Forbes Business Council. "Our mission with Forbes Councils is to bring together proven leaders from every industry, creating a curated, social capital-driven network that helps every member grow professionally and make an even greater impact on the business world."

Lapin is a graduate of the University of California at Los Angeles, a four-time Academic All-American water polo athlete, and recipient of the prestigious UCLA Athletic Department Most Courageous and Character Award. Chay was a top-ranked United States performer and represented the USA in the 2012 London Olympic Games on the U.S. Men's National Water Polo Team.

"Being a part of the prestigious Forbes Business Council is an honor and an opportunity for me to share my insights and significant experience into the many facets affecting today's 1031 exchange real estate landscape while also learning from other executives in the Forbes community. I feel very honored," said Lapin. "

Due to the increased popularity among investors to participate in a 1031 exchange into a Delaware statutory trust (DST) that has a 721 exchange exit strategy, there has been a greater number of new entrants into the space. This increased level of options makes it even more difficult for investors to decide which of the DST and resulting 721 exchange UPREIT offerings is the most appropriate for their particular situation.

At Kay Properties, we have been helping 1031 exchange investors evaluate DST, UPREIT (umbrella partnership real estate investment trust) and 721 exchange offerings for nearly two decades and have helped thousands of investors nationwide through this process into over 9,000 separate DST and 721 exchange investments.

Here are some of our top items for investors to consider about the REIT (real estate investment trust) they’ll ultimately be invested in when evaluating a DST with a 721 exchange exit strategy:

1. Evaluate the REIT’s debt levels.
Some REITs have the ability to leverage their properties up to a 300% debt-to-equity level. This high level of debt greatly increases the REIT’s volatility and could prove disastrous to the DST investors who end up inside of the REIT via a 721 exchange.

While it is true that many REITs hover around a 50% loan-to-value (LTV) ratio, which seems conservative to many investors (and the REIT employees and investment advisers/financial planners who are selling them will emphatically declare that this is a very conservative leverage amount), it is also true that leverage of any kind has a multiplying effect on investor equity.

For example, in a 50% LTV REIT, if property values were to rise by 10%, the equity in the REIT has increased by 20%. However, on the flip side, if property values were to fall by 10%, the investor equity in the REIT has decreased by 20%, moving the investors from a 50% LTV to a 70% LTV.

I think you can see my point on how debt magnifies gains and conversely magnifies losses.

To find out how much debt the DST’s “final destination” (the 721 UPREIT exchange into the REIT) can take on, one only has to review the REIT’s prospectus or private placement memorandum and search in the PDF for “leverage, financing or debt.”

For investors who prefer to avoid the risks associated with leveraged REITs, there are alternative 721 vehicles available that are predominantly debt-free, with a 0% loan-to-value (LTV) ratio.

With these DSTs and their debt-free (all-equity) 721 exchange vehicle exit strategies, investors are able to “SWAN” — sleep well at night — knowing they do not have exposure to large amounts of debt and that the vast majority of the properties in the 721 REIT are unleveraged. Yes, the upside may not be as high as those that are highly leveraged, however, conversely the downside is not nearly as impactful as for those REITS that are leveraged.

2. Evaluate the REIT’s exposure to floating rate (variable interest) debt.
Another important factor for investors to consider in a 721 REIT transaction is whether the REIT they are transferring into carries floating-rate debt (as opposed to fixed-rate debt).

Many of the DSTs that include a 721 exchange REIT strategy have a large amount of their debt outstanding that is floating rate. This floating-rate debt creates an increased layer of heightened risk as interest rates increase. Many large real estate firms, institutional sponsors and REITs have lost their buildings to foreclosure due to floating-rate debt over the years.

Therefore, each investor should review the REIT’s 10-K and 10-Q (annual and quarterly) reports to see just how much of the REIT’s outstanding debt is floating rate.

Our analysts at Kay Properties recently reviewed four different REITs available to DST investors via the 721 exchange and noted that each one had large amounts of floating-rate debt on their buildings — from 26.6% of debt outstanding all the way to 83.2%. As rates have risen, the cost to service this floating-rate debt drastically increases and creates pressure on the REIT and its ability to service that debt and deliver a healthy distribution to investors.

Many investors remember the adjustable-rate mortgages (ARMs) that got so many homeowners into trouble in the Great Financial Crisis of 2008 and 2009. These ARMs are very similar to floating-rate loans used by many of the 721 exchange REITs. As interest rates rise, so does the interest rate on the outstanding loan — which increases the risk and volatility to the investor, whether it be a homeowner or a REIT.

3. Evaluate the REIT’s dividend health percentage.
Adjusted funds from operations (AFFO) measures a REIT’s financial performance, specifically in its capacity to potentially issue dividends to its shareholders. If a REIT has a dividend health percentage of less than 100%, it means that the managers are not covering their dividend from operating activities (i.e., rent from the buildings). Rather, they are paying a portion of their dividend through borrowing (increasing the debt level that the REIT owes) and/or their distribution reinvestment proceeds.

When a REIT's adjusted funds from operations to distribution ratio exceeds 100%, it indicates that the REIT is generating more AFFO than it is distributing in dividends. This suggests that the REIT is potentially maintaining or increasing its dividend payments without relying on borrowing or selling assets to fund them. In other words, the REIT is in a strong position to support its dividend payments, which can be a positive sign of financial health and sustainability.

Again, investors need to evaluate and consider each DST’s 721 REIT vehicle’s most recent 10-K and 10-Q reports. A number of the DST and 721 REITs in the market are not fully covering their dividend — with dividend health percentages from roughly 40% to 90%. The closer a REIT is to 100% signals to investors that the REIT’s management team is focused on delivering a predictable, durable income stream in the form of dividends to its investors.

When a REIT pays a dividend out of borrowings, it signals to investors that the REIT’s management team is kicking the can down the road and relying on the potential for future rent growth in the portfolio to achieve sustainable dividend coverage. This is a plan that may or may not work out in the end, depending on the economy and property level performance. Investors who are particularly focused on “Will my DST and resulting 721 REIT be able to pay me a regular and consistent monthly dividend?” are advised to strongly consider the REIT’s AFFO and dividend health ratio.

The above items are just a few of the important factors to consider when deciding which DST with a 721 exchange exit strategy to invest in. Our experience of working with investors and these types of DSTs, REITs, 1031 exchanges and 721 exchanges for nearly two decades (as well as having been personally invested in these strategies for nearly as long) places the Kay Properties team in a unique position to provide guidance to investors throughout the country.

As always, we encourage investors to read each of the DST’s Private Placement Memorandums (PPMs) for a full discussion of the business plan and risk factors and then beyond that to read the final REITs prospectus (the program they will eventually 721 exchange into) as well as its quarterly and annual reports to understand debt levels, debt structure (variable/floating vs fixed rate) and dividend health percentages. For those investors needing help, we have team members across the country and have helped thousands of investors participate in over 9,000 of these DST, REIT, 1031 exchange and 721 exchange investments, and if appropriate, we would love to share what we have learned with you.

Past performance does not guarantee or indicate the likelihood of future results. Diversification does not guarantee profits or protect against losses. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment. This case study may not be representative of the outcome of past or future offerings. Please speak with your attorney and CPA before considering an investment.

Annualized return is defined as a total return including profit on sale and monthly distributions earned on an annualized basis.

Total return consists of initial return of investor principal, monthly distributions, and profit upon sale.

All return calculations are calculated as if the investor closed on the DST investment at the same time the property was purchased.

Diversification does not guarantee profits or protect against losses. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment.

Please speak with your attorney and CPA before considering an investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods.

Operating one of commercial real estate's largest 1031 Exchange DST investment marketplaces, Kay Properties successfully completes $170.9 million in equity placements for the third quarter and $528.7 million for the first nine months of 2022, setting new records for the DST real estate investment firm

Key Quarterly Highlights:

• Kay Properties online kpi1031.com exchange and real estate investment marketplace continues to generate some of the largest DST 1031 investment volume in the United States

• Kay Properties continued to be an industry leader in offering accredited investors debt-free offerings for their 1031 Exchange and direct cash investments.

• Kay Properties continued to advance its best-in-class educational platform.

TORRANCE, Calif., Jan. 5, 2023 /PRNewswire/ -- Kay Properties & Investments, which operates one of the nation's largest 1031 exchange property and real estate investment marketplaces, announced it has posted record third quarter results after successfully placing $170,951,644 million in equity for accredited investors participating in 1031 exchange Delaware Statutory Trust (DST) investments, Qualified Opportunity Zone Funds and direct cash investments into private real estate offerings.
These numbers represent a 26.95% increase over the first nine months of 2021, continuing Kay Properties' progress toward reaching another record-breaking year.

Record Number of Transactions for the First Nine Months of 2022

For the nine months of the year ending on June 30, 2022, Kay Properties also participated in 1,767 individual client transactions using the www.kpi1031.com marketplace to find DST assets within the multifamily, manufactured housing, single tenant net lease, industrial, self-storage and medical asset classes as well as direct cash investments into other real estate offerings.

Founded by CEO Dwight Kay, Kay Properties & Investments is considered an expert 1031 Exchange and DST investment firm, providing real estate investment options to high-net-worth clients seeking a passive management structure, and potentially broadening their real estate asset diversification via geography, asset class, and tenant mix.

The firm's results for the third quarter and the first nine months of 2022 amplify its belief that Kay Properties has created one of the largest 1031 exchange and real estate investment online marketplaces in the country.

Kay Properties' Successful Business Model Emphasizes Unlevered/Debt-Free DST Assets for Potential Reduced Exposure to Risk

Other notable trends for the third quarter include a growing number of investors across the country being attracted to Kay Properties'custom DST properties and real estate funds using an unleveraged/debt-free strategy, mitigating several risks such as lender foreclosure, lender prepayment penalties or defeasance costs, and cash flow sweeps. This emphasis on providing investments on a debt-free basis also provides greater flexibility to hold through any potential market downturns, credit crunches, recessions and/or depressions.

"We continue to see a growing number of high-net-worth investors recognizing the value of investing in DST properties, private real estate investment funds, and other real estate offerings that operate without the use of leverage. In addition, investors continue to be drawn to DSTs as a tax deferral strategy for their 1031 exchanges as well as direct investments into real estate opportunities via the Kay online real estate marketplace at www.kpi1031.com. We wouldn't be in this amazing position if it wasn't first and foremost for the Lord, our amazing clients, and our team members nationwide," stated Kay.

• Like-kind exchanges are associated with increased capital investment in and reduced loan-to-value ratios (in other words, reduced debt) on replacement properties.
• Tax-deferred exchanges improve the marketability of highly illiquid commercial real estate. (This increased liquidity is especially important to the many non-institutional investors in relatively inexpensive properties that comprise the majority of the market for real estate like-kind exchanges.)
• 1031 exchanges increase the ability of investors to redeploy capital to other uses and/or geographic areas, upgrading and expanding the productivity of buildings and facilities that in turn generates income and job-creating spending.

What recent project, transaction or accomplishment are you most proud of? I think the accomplishment I am most proud of so far is the record year Kay Properties recorded in 2021. The firm posted $610 million of equity from accredited investors which represented a 49.5% increase over the previous year. Why this is so impressive to me is because it represents the total vision of Kay Properties coming into focus. This means a fully operational integrated real estate team of consummate professionals that assist our clients using our best-in-industry only real estate investment platforms.

What does it take to succeed in your specific industry? Because the Delaware Statutory Trust is a complex tax code, the only way to succeed is if our clients are fully educated on 1031 Exchanges and the Delaware Statutory Trust (DST) investment vehicle. That’s why we spend a great deal of time, energy, and resources to make sure each client is fully aware of the required timelines, nuances, and especially the risks, benefits, and strategies available to DST investors. On top of that, it also takes having relationships with a variety of DST sponsor companies that have access to investment-grade properties that are only available to Kay Properties clients.

What led you to your current profession? I built Kay Properties and Investments with the vision of reducing concentration risk for investors by providing them a broad menu of DST opportunities available for their 1031 exchanges and cash investments. I wanted to ensure that our clients were not putting their hard-earned nest eggs in one single basket. Instead, I sought to avoid concentration risk by providing investors with the options of spreading their equity over many properties, geographic locations, tenants, DST sponsor companies, and DST offerings. As a result, I started building relationships with DST sponsors in the industry that were willing to develop debt free DST solutions for investors.

What are the Top 3 Items for Your Bucket List? My bucket list for the future really revolves around building a real estate investment firm that is poised for success regardless of market conditions. Specifically, this means emphasizing a defensive stance when it comes to investment strategies to minimize downside risk. It also means continuing our dedication to our “integrity first” business model that emphasizes transparency, education, and one-on-one relationships with our clients that provide custom investment solutions. Finally, we want to create a company that embraces professionalism and provides a climate where our team members can not only reach their goals, but also exceed them.

What do you like to when not working? I am a proud husband and father of four children, ages 1-to-13. I think that explains my time when not working.

Kay Properties Announces Record Second Quarter and First Half of Year Results for 2022 in Total Equity Placed and Number of Transactions Completed on Behalf of Delaware Statutory Trust 1031 Exchange and Direct Cash Investors

Sep 07, 2022 (PRNewswire via COMTEX) -- PR Newswire

TORRANCE, Calif., Sept. 7, 2022

The fully integrated Kay Properties real estate investment marketplace successfully completes $215 million in equity placements for the second quarter and $357.8 million for the first half of 2022, setting new records for the real estate investment firm

TORRANCE, Calif., Sept. 7, 2022 /PRNewswire/ -- Kay Properties & Investments, which operates one of the nation's largest 1031 exchange property and real estate investment marketplaces, announced it has posted record second quarter results after successfully placing $215,450,440 million in equity for accredited investors participating in 1031 exchange Delaware Statutory Trust (DST) investments, Qualified Opportunity Zone Funds and direct cash investments into private real estate offerings. In addition, Kay Properties and Investments also reported record numbers for the first half of 2022 after placing $357,835,409 million for accredited investors.

These numbers represent an increase of 67.57% for the second quarter and 39.89% increase for the first six months of 2022, marking significant progress toward, God willing, another record-breaking year.

Record Number of Transactions for the Quarter and First Six Months of 2022

For the second three months of the year ending on June 30, 2022, Kay Properties also saw a 38.87% year-over-year increase in total number of transactions on the www.kpi1031.com marketplace performed on behalf of accredited investors who invested in DST assets within the multifamily, manufactured housing, single tenant net lease, industrial, self-storage and medical asset classes as well as direct cash investments into other real estate offerings. For the first half of 2022, Kay Properties saw a 24.46% increase in total transactions that translated into more than $357.8 million in placed equity, a large part of which were invested in unlevered/debt-free assets in order to minimize risk potential for investors.

Founded by CEO Dwight Kay, Kay Properties & Investments is considered an expert 1031 Exchange and DST investment firm, providing real estate investment options to high-net-worth clients seeking a passive management structure, and potentially broadening their real estate asset diversification via geography, asset class, and tenant mix.

The firm's results for the second quarter and the first six months of 2022 amplify its belief that Kay Properties has created one of the largest 1031 exchange and real estate investment online marketplaces in the country and generates some of the largest direct to accredited investor investment volume in the United States.

"The www.kpi1031.com online marketplace has truly become a best-in-class robust platform connecting high-net-worth investors with quality real estate offerings as well as a place for real estate sponsors and operators to connect with tens of thousands of high-net-worth investors seeking to deploy capital into real estate offerings. We believe our second quarter results reinforces our belief that the Kay Properties platform creates a perfect match for all sides of the 1031 exchange, DST, QOZ and private real estate investment equation," said Dwight Kay, Founder & CEO of Kay Properties & Investments.

Kay Properties' Successful Business Model Emphasizes Unlevered/Debt-Free DST Assets for Potential Reduced Exposure to Risk

Other notable trends for the second quarter include a growing number of investors across the country being attracted to Kay Properties' business model that was founded on the philosophy of providing custom DST properties and real estate funds using an unleveraged/debt-free strategy, providing investors several potential advantages including no risk of lender foreclosure, no lender prepayment penalties or defeasance costs and no lender cash flow sweeps. This emphasis on providing investments on an debt-free basis also provides greater flexibility to hold through any potential market downturns, credit crunches, recessions and/or depressions.

"We continue to see a growing number of high-net-worth investors recognizing the value of investing in DST properties, private real estate investment funds, and other real estate offerings that operate without the use of borrowed money. In addition, investors continue to be drawn to DSTs as a tax deferral strategy for their 1031 exchanges as well as direct investments into real estate opportunities via the Kay online real estate marketplace at www.kpi1031.com. We wouldn't be in this amazing position if it wasn't first and foremost for the Lord, our amazing clients, and our team members nationwide," stated Kay.

Large institutional real estate investment firm uses Kay Properties to help complete four - $30 million DST 1031 investments to help create greater portfolio diversification.

(Torrance, CA) Kay Properties & Investments, a national leader in Delaware Statutory Trust equity placements, recently announced it worked closely with a large institutional real estate investment firm to perform a series of test investments prior to helping the client complete multiple DST 1031 exchanges totaling $100 million.

According to Dwight Kay, Founder and CEO of Kay Properties, the institutional investment firm decided to strategically relinquish a portfolio of four large retail assets and invest in custom DST 1031 exchange portfolios in order to help them become potentially more diversified. A significant caveat to their investment strategy, however, was to enter into smaller investment transactions as part of a “test investment” strategy.

“Kay Properties is widely recognized as the number one leader in placing 1031 exchange equity for every sized accredited real estate investor. In this case, we were contacted by a large institutional real estate investment firm who ultimately wanted to liquidate its $100 million portfolio of retail investment properties to potentially achieve greater diversification for its investors. The Kay Properties investment team spent more than a year educating them and introducing them to different sponsors that we work with, and carefully going over the risks, benefits and structure of DSTs, and even facilitated several test investments with them before they decided to invest a larger component of their portfolio with us,” said Kay.

Steve Haskell, Vice President with Kay Properties spearheaded the interaction with the client, and explained that while they were more sophisticated than many real estate investors, they still required a lot of education and insisted on testing out the Kay Properties DST 1031 exchange platform before placing larger investments with the firm.

“It is not uncommon for investors of all sizes to want to test our processes and platform before placing a large investment amount with us. In this case, the investment firm wanted to watch our paperwork and look at how we operated as an advisory firm, while also evaluating the DST structure as an investment vehicle. They also wanted to make sure we always ‘dotted our i’s and crossed our t’s’. We obviously performed as we do with all our clients - professionally, honestly, and always being forthright regarding potential risks of DSTs,” said Steve Haskell, Kay Properties Vice President and recognized DST 1031 exchange expert.

According to Haskell, during these test investments, Kay Properties was also introducing them to numerous sponsors, and helping them create a portfolio that fit their specific investment criteria.

“Because we had been working with them for more than a year, we were able to have properties they wanted already set up and reserved so that they could close on their DST 1031 exchange literally the same day they closed on their relinquished assets,” explained Haskell.

As a result, Kay Properties helped the investment firm successfully close on multiple DST portfolios in various types of real estate asset classes, in different geographic locations, and across a variety of tenants to help achieve greater diversification, passive management, and the potential for monthly distributions.

“The client was impressed with every facet of the Kay Properties business model, and felt like they accomplished what they wanted to do from an investment perspective,” said Haskell.

Year-End Highlights:

• Kay Places $610 Million Investments in 2021

• Kay Grows Its Fully Integrated Real Estate Team and Robust Educational Platform

Torrance, CA-based Kay Properties, which operates one of the nation's largest 1031 exchange property and real estate investment marketplaces, announced today it had posted another record year after successfully placing $610 million in equity for accredited investors participating in 1031 exchanges and direct cash investments.

Founded by CEO Dwight Kay, Kay Properties & Investments is considered one of the most experienced and knowledgeable investment firms in the country specializing in DST and private equity real estate investments. The firm was established with the emphasis on providing real estate investment options to high-net-worth clients looking for passive real estate ownership. In addition, Kay Properties believes it has created one of the largest 1031 exchange and real estate investment online marketplaces in the country that generates some of the largest DST 1031 investment volume in the United States. In 2021, for example, Kay Properties clients participated in thousands of transactions, and the $610million invested through the Kay Properties platform in 2021 was invested in more than $8 billion of real estate totaling approximately 50 million square feet of multifamily, manufactured housing, single tenant net lease, industrial, self-storage and medical properties nationwide.

Nation's Best-in-Class DST 1031 Exchange Real Estate Platform

"The kpi1031.com online marketplace has truly become a best-in-class robust platform connecting high-net-worth investors with quality real estate offerings as well as a place for real estate sponsors and operators to connect with thousands of high-net-worth investors seeking to deploy capital into real estate offerings. We think the platform creates a perfect match for all sides of the 1031 exchange equation. We are indeed grateful for our success," said Dwight Kay, Founder & CEO of Kay Properties & Investments.

Kay explained that most investments made on the Kay Properties platform are for DST 1031 exchange replacement properties followed by a growing number of cash investments into real estate funds and other vehicles. DST investments are an allowable option for replacement properties for investors who have recently sold other real estate assets and are seeking to defer taxation on their gains, enter a passive management structure, and potentially broaden their geographic and real estate asset diversification by reinvesting the proceeds in qualifying properties. So-called "like-kind exchanges" are allowable under U.S. Internal Revenue Code Section 1031 and DST investments have grown in popularity among accredited investors over the past decade.

"While it is true that a majority of people investing through the kpi1031.com marketplace is seeking like-kind exchange properties, it is also true that the platform attracts many high-net-worth investors who are interested in participating in the offerings on the company's marketplace," stated Kay.

Remarkable Year for Delaware Statutory Trust 1031 Exchange Investors

According to Kay, 2021 was a remarkable year for both Kay Properties and the entire 1031 exchange property market, including DSTs.

"Investment properties have gone through significant changes over recent years, and in many cases, owners have been faced with challenges they have never seen before, including the COVID-19 pandemic. For property owners who were motivated to sell during 2021 and were facing capital gains, reinvesting the proceeds in qualifying properties including DSTs allowed them to not only defer capital gains taxes but also become part of a diversification* strategy with the potential for appreciation and monthly income," explained Kay.

Client-Centric and Emphasis on Educating Investors

2021 also extended and reinforced the established success of the Kay Properties business model that emphasizes both client relations and DST education.

"When I started Kay Properties, I had a clear vision of creating a hyper-client-centric business model that emphasized the preservation of capital and reduced risk for investors through a fully-integrated real estate investment firm. This platform includes a growing team of DST 1031 experts and back-end support specialists that provide Kay clients deal sourcing, due diligence, transaction coordination, and investor relations, in-house accounting, legal, and asset analysis. We also support potential investors through exclusive educational programs that are presented in order to keep investors fully informed of opportunities and potential risks. The model has worked out well, and the year-end results of 2021 proves this out," said Dwight Kay, Founder and CEO.

The result has been that Kay Properties has assisted thousands of high-net-worth investors across the country deploy a proven, highly effective investment, wealth preservation, and tax strategy.

"We also would like to thank all of our investors from over the years as well as the numerous DST sponsor companies and other real estate operators with whom we have worked closely. We will continue to work tirelessly on behalf of all of our investors, team members and industry sponsor partners to, Lord willing, we will continue this great path forward in the next year and many years to follow," said Kay.

Investors can view current offerings on the Kay Properties online marketplace at www.kpi1031.com.

*Diversification does not guarantee profits or protect against losses.

This continued record growth represents a 49.5% percent increase over last year’s $408 million in equity placements

Year-End Highlights:

● Kay Places $610 Million of Equity Investments in 2021

● Kay Grows Its Fully Integrated Real Estate Team and Robust Online Real Estate Investment Platform

(Torrance, CA) Torrance, CA-based Kay Properties, which operates one of the nation’s largest 1031 exchange property and real estate investment marketplaces, announced today it had posted another record year after successfully placing $610 million in equity for accredited investors participating in 1031 exchanges and direct cash investments.

Founded by CEO Dwight Kay, Kay Properties & Investments is considered one of the most experienced and knowledgeable investment firms in the country specializing in Delaware Statutory Trust (DST) and private equity real estate investments. The firm was established in 2010 with the emphasis on providing real estate investment options to high-net-worth clients looking for passive real estate ownership. In addition, Kay Properties believes it has created one of the largest 1031 exchange and real estate investment online marketplaces in the country that generates some of the largest DST 1031 investment volume in the United States. In 2021, for example, Kay Properties clients participated in thousands of transactions, and the $610 million of equity invested through the Kay Properties platform was invested in more than $8 billion of real estate offerings totaling approximately 50 million square feet of multifamily, manufactured housing, single tenant net lease, industrial, self-storage and medical properties nationwide.

Unparalleled Online 1031 Exchange Real Estate Marketplace Platform

“The kpi1031.com online marketplace has truly become a best-in-class robust platform connecting high-net-worth investors with quality real estate offerings as well as a place for real estate sponsors and operators to connect with tens of thousands of high-net-worth investors seeking to deploy capital into real estate offerings. We think the platform creates a perfect match for all sides of the 1031 exchange and real estate investment equation. This success over the years comes from hard work and dedication to our clients and team members as well as ultimately, beyond anything else, from the Lord,” said Dwight Kay, Founder & CEO of Kay Properties & Investments.

Kay explained that most investments made on the Kay Properties platform are for DST 1031 exchange replacement properties followed by a growing number of cash investments into real estate funds and other vehicles. DST investments are an allowable option for replacement properties for investors who have recently sold other real estate assets and are seeking to defer taxation on their gains, enter a passive management structure, and potentially broaden their geographic and real estate asset diversification* by reinvesting the proceeds in qualifying properties. So-called “like-kind exchanges” are allowable under U.S. Internal Revenue Code Section 1031 and DST investments have grown in popularity among accredited investors over the past decade.

“While it is true that a large amount of people investing through the kpi1031.com marketplace are seeking like-kind exchange properties, it is also true that the platform attracts many high-net-worth investors who are interested in participating in the offerings on the company’s marketplace with direct cash investments, a trend that we are seeing growing tremendously,” stated Kay.

Remarkable Year for Delaware Statutory Trust 1031 Exchange Investors

According to Kay, 2021 was a remarkable year for both Kay Properties and the entire 1031 exchange property market, including DSTs.

“Investment properties have gone through significant changes over recent years, and in many cases, owners have been faced with challenges they have never seen before, including the COVID-19 pandemic. For property owners who were motivated to sell during 2021 and were facing capital gains, reinvesting the proceeds via a 1031 exchange into qualifying properties including DSTs allowed them to not only defer capital gains taxes but also become part of a diversification* strategy with the potential for appreciation and monthly income*,” explained Kay.

Client-Centric and Emphasis on Educating Investors

2021 also extended and reinforced the established success of the Kay Properties business model that emphasizes both client relations and DST education.

“When I started Kay Properties, I had a vision of creating a hyper-client-centric business model that emphasized the utilization of tax efficiencies afforded to investors through the 1031 exchange and real estate investments and potentially reduced risk for investors through a fully-integrated real estate investment platform. This platform includes a growing team of DST 1031 experts and back-end support specialists that provide Kay clients deal sourcing, due diligence, transaction coordination, investor relations, in-house accounting, legal, finance and asset analysis. We also support potential investors through exclusive educational programs that are presented in an effort to keep investors fully informed of opportunities and potential risks that they must be aware of. The model has worked out well, and the year-end results of 2021 proves this out,” said Dwight Kay, Founder and CEO.

The result has been that Kay Properties has assisted thousands of high-net-worth investors across the country successfully complete 1031 exchange and direct investments, into real estate opportunities via the Kay online real estate marketplace at kpi1031.com.

“We also would like to thank all of our loyal and many times repeat investors from over the years as well as the numerous DST sponsor companies and other real estate operators with whom we have worked closely. We will continue to work tirelessly on behalf of all of our thousands of investors, team members and industry sponsor partners to, God willing, continue this great path forward in 2022 and many years to follow,” said Kay.

Investors can view current offerings on the Kay Properties online marketplace at www.kpi1031.com.

*Diversification does not guarantee profits or protect against losses. Potential cash flow, potential returns and potential appreciation are not guaranteed.

The Kay Properties team operates one of the largest 1031 exchange marketplaces and has made an impact on the commercial real estate industry and the Delaware Statutory Trust 1031 exchange investment platform. As the number of DST transactions has grown, new investors look to DST expert advisory firms such as Kay Properties to help them navigate the marketplace. The Kay Properties team was founded in 2010 and includes Chay Lapin, president of Kay Properties & Investments; Jason Salmon, SVP and managing director of real estate analytics; Betty Friant, SVP; and VPs Matt McFarland, Orrin Barrow, Steve Haskell and Alex Madden. The team operates on a customer-centric philosophy that views each client as a unique entity with individual investment objectives and special challenges. The team focuses on educating clients on 1031 exchange dynamics over months and sometimes years to help them achieve their specific goals. Since its founding in 2010, Kay Properties has created a business model that provides clients access to the marketplace of DSTs from more than 25 sponsor companies, full due diligence and vetting process for each DST property they represent; the industry’s first secondary market for those wishing to sell their DST interests prior to the property going full-cycle, and the industry’s largest selection of debt-free DSTs and leveraged DSTs for 1031 debt replacement. As a result, Kay Properties clients participated in thousands of transactions, and the $610 million of equity invested through the Kay Properties platform was invested in more than $8 billion of real estate offerings totalling approximately 50 million square of multifamily, manufactured housing, single tenant net lease, industrial, self-storage, and medical properties nationwide.

**NOTE: Past performance does not guarantee future results and DST investments may result in a complete loss of investor principal. This is an example of the experience of one of our clients and may not be representative of the experience of other clients. These clients were not compensated for their testimonials. Please speak with your attorney and CPA before considering an investment

There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential distributions, potential returns and potential appreciation are not guaranteed. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals, and risk tolerances.

LOS ANGELES, Nov. 15, 2021 (GLOBE NEWSWIRE) -- Kay Properties & Investments recently helped a sophisticated high-net-worth investor strategically identify viable Qualified Opportunity Zone (QOZ) projects to help him achieve greater diversification from a heavy stock market concentration and take advantage of the unique tax benefits associated with the law outlined by the 115th Congress in Public Law No: 115-97 on December 22, 2017.

According to Betty Friant, Senior Vice President with Kay Properties & Investments, expert tax advantaged real estate advisor and highly experienced QOZ investment advisor, the client knew a little about QOZs, but relied on Kay Properties & Investments and their own CPA and attorney to help create a complete business plan that included both short-and long-term objectives.

"This particular investor did really well in the stock market but wanted to add diversification to his overall portfolio. Kay Properties helped him identify different Qualified Opportunity Zone projects that contained multiple properties distributed across many different geographic regions, multiple asset types, and with a diverse tenant mix," said Friant.

According to the Internal Revenue Service, Qualified Opportunity Zones were created by the United States Congress as part of the Tax Cuts and Jobs Act of 2017. The purpose of the program was to encourage long-term investments in low-income communities across the United States. The United States Department of Treasury estimates there are more than 8,700 QOZs in the country, including in territories like Puerto Rico. If the investor invests gains from a previous investment before December 31, 2021, and then holds their interest in the QOZ fund for at least five years, the tax they owe in December 2026 may be reduced by approximately 10% by virtue of the stepped-up basis. Furthermore, if the investor holds the investment for 10 years, there is potentially no tax on any appreciation on reinvested gains that they made. 

"So obviously, one of the keys to this investment strategy for this investor was to make sure the QOZ investment was initiated before December 31, 2021, after which he would not be able to receive a 10% step-up basis on his original investment," said Friant. 

According to Friant, Qualified Opportunity Zones may be able to provide investors a unique way to reduce taxes while doing something good for those who are less fortunate. By simply rolling profits over from the selling of a business, stocks, bonds, cryptocurrency, jewelry, art or real estate into a Qualified Opportunity Zone, investors can reap an array of tax benefits — assuming they make the investment within six months of realizing their capital gain.

"But the thing about QOZs is that their designation is based on data from the 2010 census, and QOZ's didn't become law until 2017. So here we are in 2021 and some of these previously identified opportunity zones are now on the edge of some of the hottest real estate in the United States," said Friant. 

I’ve been a professional real estate investor since prior to the Great Financial Crisis and have seen pretty much everything: Markets that go up and down, trends that fade away versus take hold and stay and, certainly, changes in political leadership that produce new tax policies.

Now we have President Biden in the White House and are seeing his proclamations and policy positions. Let’s look objectively at indications from the administration and what could happen this year with potential implications for investment real estate.

First things first, the economy at the moment is on fire. U.S. GDP may top 6% this year, according to The Conference Board. To be sure, the recovery is uneven and Covid remains a serious factor on a global basis. But I note the macroeconomy because at my firm, we believe there’s no better indicator of potential demand for investment real estate. When the economy is expanding, demand increases, generally speaking, for income properties occupied by business users and multifamily properties that provide rental housing to people.

Watch for Changes to Capital Gains Taxes and 1031 Exchanges

In terms of tax policy, now on the table from the Biden administration are some proposals with the potential to affect investment in real estate: an increase in the capital gains tax rate and limits on the use of 1031 like-kind exchanges. (Basically, 1031 exchanges allow property investors to defer capital gains and other tax on investment gains when they reinvest the proceeds in other investment properties.) Biden has proposed raising the capital gains tax rate to 39.6% for people making more than $1 million a year.

My hope — one that is shared by many others — is that the capital gains tax rate is not increased. I believe a favorable capital gains tax rate encourages just that — capital investment. But let’s say the rate goes up: How would that affect real estate investments? Generally speaking, it would potentially reduce returns, but it would also reduce returns on all manner of investments, including on the sale of stocks, bonds and other assets. So any hit to your investment real estate portfolio wouldn’t be pretty but could be proportionate.

In that environment, the reasons for a diversified portfolio of stocks, bonds and alternative investments that include real estate would be the same as they are now: to try to reduce risk by holding a mix of assets, including hard assets, that are not all correlated with the stock market. Investment real estate, as a reminder, doesn’t rise and fall, as a class, with the stock market. And there is the potential to generate income (positive cash flow) in addition to potential appreciation. There also are other tax advantages of real estate investment, including depreciation deductions to help shelter income.

Should You Sell Investment Real Estate Now?

In the short term, some property investors may be wondering: “Should I sell now to get ahead of any change in the capital gains tax rate?” The simple answer is maybe. There is no one-size-fits-all answer for everyone. It depends on your individual situation and the property you’re holding. If its value has held up well during the pandemic and you need to sell, it may make sense. If the value has declined but is poised for a rebound and you don’t need the proceeds now, it may make sense to wait. Of course, consult your tax or legal adviser as you consider the options, because everyone’s individual situation is different.

Biden also has proposed curtailing the use of 1031 like-kind exchanges. To be clear, he has not proposed eliminating them, but limiting their use. In the administration’s budget released in late May, there is a proposal to limit the amount of capital gains from investment property sales that can be deferred to $500,000 per year for individuals and $1 million per year for married couples. (Today there is no limit on the amount of capital gains from the sale of investment real estate that can be sheltered using 1031 exchanges.)

You’re planning ahead for retirement, and determined to invest in a diversified basket of stocks, bonds and alternative investments. Maybe you have no exposure to income properties now, or maybe you’re a landlord either as your primary business or as a part-time investor. If it’s the latter, you’re likely ready to shed the responsibilities in favor of a passive approach that allows you to try to stress less and enjoy more.

Either way, you can be invested in commercial and multifamily real estate in retirement without the daily hassles of being a landlord. There are a range of passive real estate investments with the potential to help you achieve your goals, dreams and objectives. Here’s a look at four of them.

Real Estate Investment Trusts (REITs)

The market for publicly traded REITs is long established, and many people access the market through their retirement plans and stock brokerage accounts. REITs are generally companies that own and operate real estate, so you’re investing in the company, not just the underlying real estate. REITs pay out their income in the form of dividends, which are taxable.

The biggest downside to REIT investments — aside from their high correlation to the overall stock market and the volatility that entails — is the inability to defer taxation on any capital gains from the sale of shares. In other words, when you sell your REIT shares, you will have to pay capital gains tax on any gains.

Delaware Statutory Trusts (DSTs)

With DSTs, which are a form of direct real estate ownership, you have the ability to defer capital gains tax on gains so long as the gains are reinvested in other investment properties. (The reinvestment occurs in the form of a 1031 exchange, which your tax or legal adviser can tell you more about.) That’s one reason but not the only reason to consider DSTs.

DSTs are entities that hold title to investments, such as income-producing real estate. Most types of real estate can be owned in a DST, including industrial, multifamily, self-storage, medical and retail properties. Often, the properties are institutional quality similar to those owned by an insurance company or pension fund, such as a 400-unit Class A multifamily apartment community or a 100,000-square-foot industrial distribution facility leased to a Fortune 500 logistics and shipping company. The asset manager (also known as the DST sponsor company) takes care of the property day to day and handles all investor reporting and monthly distributions.

DST investments are used by cash investors with a typical minimum of $25,000, as well as by investors seeking a replacement property as part of a tax-deferred 1031 exchange solution. To learn more about retirement planning with DSTs or how they can be used in a 1031 exchange, visit www.kpi1031.com.

Tenants-in-Common Properties (TICs)

A TIC structure is another way to passively invest in real estate as part of a retirement planning strategy. With a TIC, you own a fractional interest in the property and receive a pro rata portion of the potential income and appreciation of the real estate. As a TIC investor, you will typically be given the opportunity to vote on major issues at the property, such as whether to sign a new lease with a tenant, refinance the mortgage or sell the property.

Although TIC investments and DSTs have their nuances and differences, they often will hold title to the same types of property. DSTs are generally considered the more passive investment vehicle. Both DSTs and TICs qualify for 1031 exchange tax treatment as described above.

Qualified Opportunity Zone Funds

Qualified Opportunity Zone Funds, which were enabled by the Tax Cuts and Jobs Act of 2017, are a form of private equity funds. They offer some capital gains tax deferral and elimination benefits. A fund of this type can invest in real property or operating businesses within an Opportunity Zone, typically a geographic area in the U.S. that has been so designated by the government because it may be underserved or neglected.

If you seriously consider this investment option, be aware that there may be a higher level of risk based on the location of the property, and the time horizon of the fund may be as long as 10 years, which means tying up your capital for that length of time in an illiquid asset. With a Qualified Opportunity Zone Fund, there can be potential cash flow and appreciation, as well as positive economic and social impacts on a community.

Bottom line: Don’t forget about passive real estate investments in your retirement planning. Investment properties can provide diversification to a stock- or bond-heavy portfolio, with the potential for income in addition to appreciation and tax advantages, including the ability to defer capital gains taxes. (Diversification does not guarantee protection against losses or appreciation, although many believe it is a prudent strategy when investing.)

If you are or were a landlord, passive real estate investments also let you continue to be invested in the real estate market without the headache of dealing with tenants.

All investments carry risk, be they stocks, bonds or hard assets like real estate, but some investment strategies are less risky than others.

I’ve taken a generally conservative approach to real estate investing over a considerable career, and with much success. My approach has helped mitigate the risks of real estate ownership and investment while maximizing the potential to generate income (positive cash flow), shelter income from tax, and achieve asset-value appreciation. Here are four “secrets” to my success. Please note that past performance never guarantees future results, but sharing my strategies, I believe, will help anyone considering direct real estate investing.

#1: Avoid highly volatile real estate asset classes.

Some asset classes (the type of building) have demonstrated that they are much higher risk and prone to recessions than others. These include hotel and lodging properties, senior housing in many of its forms, and real estate used to produce oil and gas. I highly recommend avoiding these properties and potentially saving yourself from heartache.

Hospitality, for example, has been hit hard by all three recessions since 2000. In 2010, following the Great Recession, U.S. hotels considered distressed by Real Capital Analytics approached 2,500 properties with total debt of $40 billion. Many investors in these properties never recovered even their principal — they lost everything. Fast forward and the COVID-19 pandemic continues to wreak havoc on the hospitality asset class.

Senior care is another tough spot, with senior housing, assisted living, long-term care facilities and nursing homes all subject to regulations that increase the risk and stability of owning and operating them. And that was even before the pandemic created new challenges to caring for a particularly vulnerable population.

Properties used to produce oil and gas also carry above-average risk. Drilling and royalties from energy production are uncertain at best and highly volatile at worst. If an oil well doesn’t produce as expected despite the best due diligence, the underlying asset value can nosedive. Fluctuating oil prices from supply and demand shocks can have the same effect. Buyer beware.

#2: Avoid or at least seriously minimize the use of leverage.

It’s contrarian to invest in real estate without leverage, but it can be done quite effectively. Many of our clients don’t want to increase their risk profiles, especially at a stage of life where they find debt worrisome.

Fortunately, there are no-leverage (debt-free) real estate investments available including debt-free Delaware statutory trusts (DSTs) and debt-free real estate funds. With the pandemic still hovering all over the world and real estate subject to uncertainty and potential distress, a debt-free strategy can be highly attractive for risk-adverse investors such as myself. One thing’s for sure: With private real estate offerings that are debt free with no long-term mortgages encumbering the property, there’s no risk of lender foreclosure.

All debt isn’t bad, but a defensive real estate investment strategy makes limited or no use of debt to potentially mitigate the risks of leverage to an equity investment.

#3: Load your basket (or shopping cart) with more than one egg.

Often high-net-worth investors purchase their own properties. It’s a point of pride, and many find the idea of being a landlord attractive, at least initially. Increasingly, however, many investors have decided that the health crisis and economic headwinds are just too great to justify putting all their eggs in one basket, and that the over-concentration risk isn’t as appealing as in years past — that is, being the sole owner of an investment property.

It’s a timeless defensive strategy to diversify real estate investment capital into multiple properties, multiple geographic locations, multiple asset classes and with multiple tenants and business models. This can be accomplished easily through a range of DST, tenant-in-common (TIC), or limited liability corporation (LLC) investments, though the tax treatment of these structures is different.

Certainly diversification does not guarantee profits or protect against losses, but many investors realize it’s just as prudent to diversify their real estate portfolios as their stock portfolios. For example, instead of purchasing a 96-unit property in Tampa, he or she can diversify their capital across 5,000 multifamily units in a dozen different apartment communities across the Sunbelt and Mid Atlantic.

Or instead of purchasing one net lease medical building for $5 million, they can diversify their capital across 10 different single-tenant net lease properties including drugstores, e-commerce industrial distribution facilities, discount stores, kidney dialysis clinics and more.

#4: Co-invest with others with similar goals as yours.

It’s not mutually exclusive to be a private equity real estate investor and a co-investor — you can be both at the same time. DSTs, TICs, LLCs and qualified opportunity zone funds are among the vehicles you can co-invest in alongside others with similar goals and risk tolerance. Inherently, co-investing is a more defensive play than investing solo and tying up the majority of (or a large portion of) your net worth in a single asset in a single market.

There’s no shame in being a defensive real estate investor. In fact, at the end of the day, the approach may have even more potential to produce a consistent stream of monthly income and long-term appreciation as part of a diversified investment portfolio.

Dwight Kay is founder and CEO of Kay Properties and Investments, LLC, which operates a DST and 1031 exchange property marketplace.

Despite raising it as a possibility on the campaign trail, modifying or repealing the treatment of the tax benefits of like-kind exchanges has not been part of President Biden’s proposed tax reforms to pay for social services. That doesn’t mean that commercial real estate associations are standing pat, however. They have been actively advocating to preserve Section 1031 of the U.S. Internal Revenue Code, which defers capital gains taxes on property sales if the gains are reinvested in “like-kind” properties of equal or greater value.

Attention on the issue was first raised back in July when Biden outlined his proposed $775 billion “Caring Economy” Plan, which would provide funding for child and elderly care. The released 10-page proposal included eliminating the tax benefit for investors with incomes over $400,000 to help pay for the plan. More recently, with a potential $2 trillion infrastructure bill on the agenda, industry insiders are keeping a watch on like-kind exchanges as a potential funding mechanism for the bill.

For now, commercial real estate groups are signaling that their concerns are muted. As Suzanne Goldstein-Baker, who serves as co-chair of the Federation of Exchange Accommodators (FEA) Government Affairs Committee and is executive vice president/general counsel for Investment Property Exchange Services Inc., stresses, “There is no pending legislation to eliminate Section 1031 of the tax code or anything currently that poses a tangible threat.”

Changes to Section 1031 have not so far been mentioned as part of any specific tax reforms proposals by the administration. Moreover, it does not appear that tax reform is at the top of the Biden Administration’s priorities right now, says Alex Madden, vice president at Kay Properties & Investments, which provides online listings and access to 1031 eligible properties.

“Of course, there always is an intangible threat that it could get offered up as ‘pay for,’” Goldstein-Baker says.

For their part, industry groups are trying to stay ahead of the game. In fact, just two weeks ago, more than 30 industry organizations, including the Real Estate Roundtable, NAIOP, the Mortgage Bankers Association, the American Hotel & Lodging Association, Nareit and the National Apartment Association, among others, sent a letter to Secretary of the Treasury Janet L. Yellen outlining the benefits of the 1031 exchange transactions to the U.S. economy, including its potential to help the U.S. recover from the impact of the COVID-19 pandemic.

“Gains reinvested in new property through an exchange create a ladder of economic opportunity for small and minority-owned businesses and entrepreneurs, and generate much needed tax revenue for states and localities,” the letter states. “Also, like-kind exchanges increase the supply of affordable rental housing by filling gaps in housing supply not covered by other incentives.”

Whenever the like-kind exchange comes under scrutiny, which has happened multiple times over its 100-year history, its proponents are ever vigilant in educating members of Congress about the tax incentive’s benefits and importance to real markets and the economy, Goldstein-Baker notes. She says studies have shown that the 1031 exchange is a powerful economic stimulator that creates jobs and increases capital investment in property improvements.

Keeping a watchful eye

Despite these efforts, everyone in the industry involved in 1031 transactions is keeping a watchful eye out for possible reforms to this tax code since an income limit for eligibility was mentioned during the campaign, notes Madden.

Madden supports the notion that while many real estate investors benefit from the tax break, the ripple effect of 1031 exchange transactions, which represent 25 to 33 percent of all commercial and multifamily sales, can have a significant impact on local economies, as they involve a variety of ancillary services to process the transaction and renovate the property.

“Owners maintain, buyers renovate,” adds Baker, who notes that 1031 exchange transactions can create jobs and improve neighborhoods because they encourage capital investment. Madden also notes that improvements to replacement properties often trigger property reassessments that generate greater tax revenue for local governments than the property previously had provided.

Studies support these contentions, which might serve to discourage changes to the 1031 incentives.

A study entitled, “The Economic Impact of Repealing or Limiting Section 1031 LikeKind Exchanges in Real Estate,” published in 2015 by David C. Ling, professor of real estate at the University of Florida and Milena Petrova, associate professor of finance at Syracuse University, looked at the impact of like-kind exchanges on both the real estate market and tax revenue.

Their analysis, which included review of more than 1.6 million commercial real estate transactions that took place between 1997 and 2014, found the widespread use of Section 1031 improved liquidity and increased investment in the real estate market and building improvements. It also increased overall taxes paid to the Treasury—supporting the real estate industry’s thesis that the cost of Section 1031 is largely overstated and its benefits overlooked.

The study found that 88 percent of replacement properties are eventually disposed of in a taxable sale that generates approximately 19 percent more in taxable gains than non-exchange properties sold in conventional sales.

A 2015 Ernst & Young study, Economic Impact of Repealing Like-Kind Exchange Rules,” presented similar findings, but it also looked at the potential impact of a repeal on the U.S. economy. Ernst & Young’s findings suggested that elimination of this tax incentive would shrink the U.S. economy by up to $13.1 billion annually and reduce annual GDP by $8.1 billion, as a result of less investment, which was estimated to fall by $7.0 billion, and lower labor incomes, which would be reduced by about $1.4 billion.

Given these factors, many commercial real estate executives remain hopeful that the Biden Administration will avoid making changes to 1031 exchanges and will look for other funding sources to pay for expanded services and infrastructure improvements.

The highest profile professional real estate developers and investors are typically those who have won big or lost big — they made their names taking oversized risks that in some cases paid off handsomely and in other cases crashed and burned.

But real estate investing isn’t just for highfliers with nothing to lose. In fact, quite the opposite is true. Investors can take a decidedly defensive approach to building wealth through real estate investing, especially given the favorable tax treatment that rewards many aspects of real estate investment. (Consult your tax adviser to learn more.) To be sure, all investments carry risk, be they stocks, bonds or hard assets like real estate, but some investment strategies are less risky than others.

I’ve taken a generally conservative approach to real estate investing with much success. These strategies are hallmarks of my approach. They’ve helped mitigate the risks of real estate ownership and investment while maximizing the potential to achieve income (positive cash flow), shelter income from tax, and realize asset-value appreciation.

Tip #1: Avoid recession-prone, highly volatile real estate asset classes

Some asset types have demonstrated that they are much higher risk and recession-prone than others. These include hotel and lodging properties, senior housing in most of its forms, and real estate used in the production of oil and gas. Avoid these properties.

Hospitality, for example, has been hit hard by all three recessions since 2000. In 2010, following the Great Recession, U.S. hotels considered distressed by Real Capital Analytics approached 2,500 properties with total debt of $40 billion. Many investors in these properties never recovered even their principal — they lost everything. More recently, we’ve seen historic disruptions by the COVID-19 pandemic as travel both for business and leisure ground to a halt. (Marriott, as one example, had the worst quarter of its entire company history during the pandemic.)

Senior care is another sore spot, with senior housing, assisted living, long-term care facilities and nursing homes all subject to regulations that increase the risk and stability of owning and operating them. And that was even before the pandemic layered onto these types of properties the challenges of a particularly vulnerable population during a catastrophic public health crisis.

Also volatile are properties used for the production of oil and gas. Drilling and royalties from energy production are uncertain at best and highly volatile at worst. If an oil well doesn’t produce as expected despite the best due diligence, the underlying asset value can nosedive. Fluctuating oil prices from supply and demand shocks can have the same effect. Buyer beware.

Tip #2: Don’t load up on debt

It sounds contrarian and it is, actually, because it can be easy to borrow against real estate. People frequently do it to minimize their equity investment and load up on properties. But while many advisers tout the benefits of leverage, we tout the risk of leverage. Many of our clients don’t want to increase their risk profile, and since they’ve often already paid off properties — their homes and sometimes investment properties — they don’t want to go back into debt especially at a stage of life where they want to lower their potential risk and not increase it.

It’s understandable. Fortunately, there are no-leverage real estate investments available, including debt-free Delaware Statutory Trusts (DSTs). With the pandemic hovering all over the world and real estate subject to uncertainty and potential distress, a debt-free strategy can be attractive. One thing’s for sure: With private real estate offerings that are debt free with no long-term mortgages encumbering the property, there’s no risk of lender foreclosure.

LOS ANGELES, June 18, 2020 (GLOBE NEWSWIRE) -- Kay Properties and Investments today announced the completion of a 1031 exchange for a family who has owned and operated commercial investment properties for many years.

The family has built considerable wealth over decades of owning and operating a portfolio of their own commercial properties and reached a point where they no longer wished to actively manage their real estate. The properties have experienced considerable capital appreciation, creating a very large tax event if they weren’t to utilize a 1031 exchange to defer their taxes due upon sale. After meeting in person and conducting vigorous due diligence of Kay Properties and the DST structure, the family chose the Kay Properties 1031 marketplace at www.kpi1031.com to complete their 1031 tax deferred exchange into multiple DST 1031 investment offerings.

The Delaware Statutory Trust exchange investments were completed by Kay Properties and Investments team members Betty Friant, Senior Vice President, and Matt McFarland, Associate.

Friant stated, “Our clients discovered DSTs through researching various passive investment opportunities for an upcoming sale. Through their research they were pointed to Kay Properties and began to learn more about Delaware Statutory Trust properties as an option for them to consider. Although they had the capital to purchase a single high-quality NNN property on their own, they ultimately weren’t comfortable allocating $6 million into a single property and chose instead to diversify. The DST structure afforded the clients to the ability to participate in the same caliber of asset, only on a more diversified basis.”

Friant continued, “At Kay Properties, we are proud of the diversification capabilities we can offer our clients through our relationships with many DST sponsor companies who do an amazing job acquiring the real estate, structuring it as a DST and managing the property on behalf of our clients.”

McFarland added, “At Kay Properties, we have access to nearly the entire marketplace of DST properties. This allows us, when working with a particular client, the true ability to make recommendations based on the client’s objectives and long-term goals. Through the access to over 25 sponsor firms and 20-40 different DST investments at any given time, we are able to help create a well-diversified portfolio for our clients. This particular client was able to purchase eight different DSTs with seven different sponsor firms. The real estate held in the DSTs they invested in amounted to over 890,000 square feet of commercial office, medical office, pharmaceutical, necessity retail, automotive, and healthcare related properties, geographically diversified across 14 states.”

McFarland continued, “The family most enjoyed the flexible nature of the DST as it pertains to equity allocation. With the typical minimum investment amounts being $100,000, this family and so many others are able to allocate specific amounts of their equity into individual DST offerings that make sense regarding their overall financial situation, goals, objectives and risk tolerances.”

LOS ANGELES, May 18, 2020 (GLOBE NEWSWIRE) -- Kay Properties and Investments today announced that the Kay team was able to successfully help a group of sophisticated owners who were exiting a large portfolio of hotel properties complete their 1031 exchange into a diversified portfolio of DST (Delaware Statutory Trust) investments.

Dwight Kay, Founder and CEO of Kay Properties, stated, "The principals of this specific investment group had invested with us many years ago on a smaller 1031 exchange into DST properties and as such they were comfortable with the kpi1031.com marketplace to access DST exchange properties for this larger exchange."

Kay continued, "Our clients were able to get a large portion of their portfolio out of the hospitality industry and diversify across various asset classes within the DSTs. Their timing was impeccable in that they sold their portfolio just a few months prior to the lockdown beginning from COVID-19."

Chay Lapin, Senior Vice President, added, "This 1031 exchange had a lot of moving parts due to there being multiple ownership entities and strict 1031 exchange timeframes. We had to work extensively with the clients' CFO to make sure we got him everything they needed to complete their 1031 exchange." Lapin continued:

"One of the benefits of working with Kay Properties and Investments is the team that Mr. Kay has put together. We have a dedicated 1031 exchange team of up to 20 people who help our clients through the educational process to every detail of the closing process. Our Kay team departments consist of our senior executives whose goal is to educate clients and explore various 1031 exchange investment options. We also are one of the few 1031 DST exchange firms that has an internal legal team, accounting team, due diligence team, transaction team and closing team that are here to provide valuable resources for our clients."

"On this particular exchange we worked very closely for many months with eight DST sponsor companies. Many of the largest DST sponsor companies in the DST industry that we work with have told us many times over the years that we are the industry leader in the DST space. Due to our DST sponsor relationships we were able to help our client complete the purchase of over $64,000,000 of DSTs successfully. We believe that with our Kay team we were able to provide the options and resources that most DSTs firms cannot due to the fact that they are much smaller firms or are financial planners. Our goal at Kay Properties is to provide extreme specialization for our clients within the DST real estate investment realm, and this large 1031 DST exchange transaction is another solid example of us providing real value to our clients."

LOS ANGELES, May 06, 2020 (GLOBE NEWSWIRE) -- Kay Properties and Investments is honored to announce the completion of a 1031 exchange five years in the making. When the clients reached out to Kay Properties and Investments (www.kpi1031.com) looking for replacement properties after the sale of their 2,000+ acre ranch, they were trying to determine their options.

Kay Properties Vice President Alex Madden stated, “After looking around the industry our clients very quickly decided to work with Kay Properties and Investments for a few reasons including the breadth of DSTs available on our platform, the expertise and knowledge of the industry, and our team approach to clients’ 1031 exchanges.”

Senior Vice President Chay Lapin added, “I want to thank the eight different DST sponsor firms who helped our clients diversify across asset classes including: Multifamily, Investment Grade Corporate Headquarters, Self-Storage, Student Housing and Investment Grade Medical Office. Our Kay Properties team was able to utilize eight of our DST sponsor company relationships and experienced team members to build a diversified portfolio of 1031 exchange replacement properties. Our team was able to help them complete the majority of their 1031 exchange before their 45-day identification period was even over, with the remainder closing only a few days later.”

Lapin went on to say, “Our Vice President, Alex Madden, did an excellent job staying with our clients through the entire education process. The clients were pleased with their 1031 exchange experience and they very quickly began asking about further investment opportunities available through Kay Properties, and we are currently helping them evaluate and complete additional investments.”

Private market real estate investors—be they experienced in real estate syndication or new to the asset class—have been exposed to many more investment opportunities since President Obama signed the JOBS Act into law in 2012.

Among other things, the law eliminated the ban on general solicitations and general advertising of many private real estate offerings that were structured as Regulation D, Rule 506(c) offerings. As a result, the market for private equity real estate has expanded and become more transparent, with more investors having more options to invest in commercial and multifamily real estate with the potential to generate cash flow and appreciation over time.

The subsequent rise in online real estate investing has been remarkable. As EY estimated last year, the online real estate investing market around the globe is expected to be $8.3 billion in 2020, with no sign of slowing. (We actually think that’s a conservative number, depending on how online real estate investing is defined.)

For all the benefits of investing with the crowd, there is one downside to many syndicated investments that every real estate investor should know. Most co-investment opportunities are in the form of limited partnerships (LPs) or limited liability companies (LLCs). That’s not necessarily bad, except that those forms of syndicated ownership don’t qualify for one of the most advantageous real estate tax benefits available in the U.S.: 1031-exchanges.

Also known as like-kind exchanges, 1031s allow investors to defer taxes on capital gains at the time real property investments are sold if the net equity from the sale is reinvested into a similar investment or business property of the same or greater value. According to the Internal Revenue Service: “Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Real properties generally are of like-kind, regardless of whether they’re improved or unimproved.”

For example, an apartment building could be exchanged for a warehouse, a warehouse for a piece of raw land, a piece of raw land for a single-family rental property, etc.

The net effect of 1031 exchange investing: the initial invested capital and the gain can continue to grow, potentially without immediate tax consequences. Then, if and when the new investment is sold without the equity reinvested in another exchange property, the prior gain would be recognized. There are some finer points; investors should consult their tax or legal advisors prior to selling or exchanging a property, as everyone's tax situation is different.

As a hypothetical example, if an investor places $100,000 of capital into a crowdfunded LLC offering that is purchasing an apartment building, and the property sells after a few years and has a gain, that investor will be subject to depreciation recapture tax of 25 percent, federal capital gains tax of 15-20 percent (depending on their income tax bracket), state capital gains tax of 0-13.3 percent (depending on the investor’s home state) and an additional 3.8 percent Medicare surtax. All this means that the gain from the crowdfunded investment may be subject to taxation of 20-45 percent or more, leaving the investor with much less of the total investment dollars to reinvest.

However, if that investor had participated in a 1031 exchange program with the $100,000 investment, he or she would have been able to defer 100 percent of the potential gain and depreciation recapture tax utilizing a 1031 exchange and keep much more of their capital invested in real estate—generating potential cash flow and appreciation—as opposed to paying a large tax bill.

But if most crowdfunded investments don’t qualify for 1031-exchange treatment, which assets do? The IRS identifies two types of allowable co-ownership structures that work for 1031 exchanges: Delaware Statutory Trusts (DSTs) and Tenants-in-Common (TIC) investments.

DSTs and TICs have been around since the early 2000s and have demonstrated their efficacy as direct real estate ownership vehicles. Mountain Dell Consulting reports that investment in DSTs and TICs reached a post-recession high in 2019, and the trend continues.

Many investors when selling income property utilize a 1031-exchange. What do seasoned real estate investors know that the uninitiated don’t? That deferring taxes on gains allows investments to continue to potentially grow. Public policy allows tax-deferred real property exchanges because they encourage investment in the real estate market and boost economic growth.

The world of private real estate investing has opened up significantly since the JOBS Act, and online crowdfunding has provided many more people with the ability to easily access, evaluate and invest in deals. This is generally a very good thing, but not all co-investment opportunities are created equal since with a typical LLC or LP offering when the property is sold investors will not be able to participate in a 1031-exchange and thus be hit with a tax bill.

Dwight Kay is founder and CEO of Kay Properties, which operates an online marketplace for 1031 exchange properties at kpi1031.com.

Crowdfunding's gained a lot of attention lately. But amid all the scrutiny, one essential fact has eluded many observers. Most crowdfunding offerings are structured as LLCs or LPs. That means they are unable to leverage a very appealing real estate tax benefit: The 1031 like kind exchange, allowing tax to be deferred on property sales with capital gains.

A 1031 exchange is an exchange of like kind business or investment properties in the United States, which permits taxable gains to be deferred on the property that is sold first. From the date that property is sold, the seller has 45 days to pick out a potential property to replace the sold property. From the date the original property changes hands, the seller has 180 days to acquire the replacement property and finalize the exchange.

The gain from a crowdfunded investment may be subject to a 20 to 45 percent tax bite, leaving the investor with far less of the total investment dollars to reinvest. If, however, the same investor had participated in a Delaware Statutory Trust (DST) or Tenants in Common (TIC) on the front end, he or she would have been able to defer 100% of the potential gain and depreciation recapture tax using a 1031 exchange coming out of the initial investment. So says Dwight Kay, CEO and founder of Kay Properties, a DST brokerage and advisory firm with offices in Los Angeles, New York City and Washington, D.C. That would allow the investor to keep much more money invested in real estate, generating greater potential cash flow and appreciation from the next investment, versus forking out for a big tax bill.

Not created equal

There are many reasons to invest in income-generating real estate, with diversification being among the most significant.

"All your eggs aren't in one basket with everything correlated with the stock market – although diversification does not guarantee profits or protect against losses," Kay says. "Once you decide to invest in real estate alongside other people with similar goals, it becomes important to look at the way the asset or assets are held so as not to limit the potential tax savings available."

Most co-investment opportunities are structured as real estate investment trusts (REITs), limited partnerships (LPs) or limited liability companies (LLCs), Kay adds. There's nothing fundamentally wrong with these structures, other than the reality that all co-investment opportunities are not created equal. In a conventional REIT, LLC or LP offering, a sale of the property or portfolio does not generally allow investors to take part in a 1031 exchange. The sale triggers a taxable event, with a resultant tax bill on capital gains and depreciation recapture, Kay reports.

"How do you potentially defer the tax hit?" he asks. "By investing in a DST property to begin with. The IRS allows people to invest out of a DST and into a 1031 replacement property as long as the new property meets basic 1031 qualifying criteria. The result: a gain from the prior investment can be reinvested in an exchange property with tax on capital gains and depreciation recapture deferred."